Vita: ILS and risk transfer

Insurance-linked securities (ILS) transfer insurance-related risks to the capital markets. Investors in these securities usually receive an attractive fixed interest rate, and in return, the funds they pay can be used to pay out an underlying reinsurance contract if and when it is needed. This effectively allows an insurance or reinsurance company to tap into the additional risk capacity offered by capital markets.

ILS is best known for catastrophe bonds, where re/insurers share the risks of natural catastrophes. Typically, under such agreements, if a hurricane or earthquake of a defined strength occurs in a certain geographical region, the bond is triggered, and the funds can be used to pay the reinsurance obligations stipulated in the contract.

Since 1997, the catastrophe bond market has proven very attractive for both investors and re/insurers. In fact, 2021 saw a record issuance of USD 12.8 billion in cat bonds to the world market.

Although small, the Life ILS market is an innovative way for life reinsurers to transfer peak risks to the capital markets. Often, life risks can be combined with other risks to make a catastrophe bond more diversified. Swiss Re’s original Vita programme, launched in 2003, was the pioneer for Life ILS globally.

In 2021, Swiss Re issued Vita VI. This bond gives Swiss Re USD 120 million of extreme mortality protection against losses in Australia, Canada, the UK and the US, running from 2021 until the end of 2025. Although COVID-19 deaths are excluded in 2021, the bond will cover deaths from COVID-19 as of 2022.

Our strategy in action
Discover how Swiss Re advanced its business in 2021 by focusing on three strategic pillars: risk transfer, risk insights and risk partnerships.